Getting a mortgage from a credit union

You're ready to take out a mortgage loan, and you're shopping around with banks and lenders both big and small. But maybe you shouldn't limit your mortgage search to these traditional providers of financing. There's another type of mortgage lender that many overlook when hunting for a home loan: credit unions.

Credit unions operate much like banks, but they are nonprofit organizations. They also offer mortgages, and supporters of these institutions say that because credit unions are nonprofit, they can often offer loans at lower fees and with lower mortgage rates.

Advocates of credit unions say that these institutions often hold their mortgages instead of selling them to third-party servicers like banks tend to do. This means, they say, that credit unions can be more flexible with borrowers who might have higher monthly debts or income sources that are trickier to verify.

"What distinguishes us is the service levels we give," said Theresa Williams-Barrett, vice president of consumer lending and loan administration with Affinity Federal Credit Union in Basking Ridge, New Jersey. "Credit unions typically provide a lot of service to the members. They are more concerned with how they can get a person in a home than they are with looking at the guidelines to see if they can decline a loan request."

A growing source of mortgage funds

Consumers are still far more likely to take out a mortgage with a traditional bank or lender. But a growing number of borrowers are turning to credit unions. Research firm Callahan & Associates said that in the second quarter of 2016, credit unions across the country had a loan balance of more than $340.7 billion in first mortgage loans. That's the highest this number has been for any one quarter.

Still, credit unions only claimed 11 percent of the mortgages originated in the United States during the first quarter of 2015, according to a report by TransUnion, evidence that most customers still seek out traditional funding sources when they're searching for home loans.

Is a credit union mortgage right for you?

Why should you consider a credit union when you're ready for a mortgage? Chuck Price, vice president of lending at NEFCU, a credit union in Westbury, New York, points to the lower fees and interest rates that credit unions often provide.

"We tend to be a little less aggressive from a fee perspective," Price said.

The reason? Credit unions are nonprofits, so they can afford to offer mortgages at fees that allow them to just break even. Traditional lenders and banks have to focus on earning a profit, meaning that they might have to charge higher fees to mortgage borrowers.

Price also points to the flexibility provided by credit unions. NEFCU holds onto the mortgages it originates, he said. This means that it can work with customers who might have higher debt-to-income ratios, shorter job histories and income sources that are more difficult to verify. Traditional banks might quickly pass on such borrowers, Price said.

"We have a tremendous amount of flexibility," Price said. "We can often make exceptions to work with borrowers who might not qualify at larger banks."

The personal touch

J. Paul Leavell, senior strategy analyst at Charlotte Metro Federal Credit Union based in Charlotte, North Carolina, said that credit unions often charge less for appraisals and other closing costs. Some will waive the requirements for costly private mortgage insurance even if borrowers are taking out loans for as much as 95 percent of the value of the homes they are buying.

Then there's the personal touch. Leavell said that loan officers who work with credit unions tend to slow down when guiding customers through the lending process. Many borrowers appreciate this, Leavell said.

"Credit unions not only gather the relevant information for approving and processing a mortgage, but they are more willing to hold the customer's hand throughout the process," he said. "They'll explain, for example, the reason why certain information is required. Credit unions are also willing to offer guidance on the type of loan consumers should take based on the consumer's particular circumstances."

Not the only option

This doesn't mean, though, that credit unions are necessarily the best option for your mortgage loan. Yes, credit unions can offer lower rates and fees. But larger banks and lenders can often do the same. Your best move is to shop around with several different lenders, of all types.

You might find that the big national bank actually offers a better interest rate than the smaller local credit union.

Kyle Kamrooz, co-founder and chief operating officer of "cloudvirga," an Irvine, California-based company with the goal of automating mortgage lending, said that it is true that credit unions, because they are usually smaller, do provide a more personal touch that can help ease the stress some borrowers face when applying for a mortgage.

But Kamrooz also said that there is no guarantee that a credit union will offer lower rates or fees than will a traditional bank or lender. Consumers need to shop with several lenders if they want to find that best rate and lowest closing costs, he said.

A satisfied customer

Bill Schoolman, a retired executive, says that he has no regrets about taking out a mortgage with his local credit union, NEFCU. Earlier this summer, Schoolman closed a loan of about $1.5 million to purchase a home on Setauket Harbor in New York. Schoolman says that he was thrilled with both the service and the interest rate he received on his jumbo mortgage, 3.3 percent.

Schoolman had tried to take out his loan with traditional banks. But complications regarding previous liens constantly scuttled his efforts.

NEFCU, though, was able to work through these difficulties and get Schoolman his loan, he said.

"They were very involved in the whole process," Schoolman said. "They were not afraid of the obstacles. They had great patience. They really stepped up to the plate, and I'd never go back to a traditional bank for a mortgage again."

If you are interested in taking out a mortgage with a credit union, you do have options. The Credit Union National Association says that there are now more than 6,000 credit unions operating across the country.

Some credit unions require that you be part of a specific union or a member of the U.S. military. But most are open to anyone who lives in the credit union's service area.

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